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[2017] ZALCJHB 137
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SVA Security (Pty) Limited v Makro (Pty) Limited (s division of Massmart) and Others (J720/17) [2017] ZALCJHB 137; (2017) 38 ILJ 2376 (LC) (3 May 2017)
IN
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case
no: J 720/17
In the
matter between
SV
A SECURITY (PTY) LIMITED
Applicant
and
MAKRO (PTY) LIMITED A
DIVISION OF
MASSMART
First Respondent
FIDELITY SECURITY SERVICES
(PTY) LTD
Second Respondent
CARLA BARNES & 329 OTHERS
Third –
Further Respondents
Heard:
11 April 2017
Delivered:
3 May 2017
JUDGMENT
TLHOTLHALEMAJE
J
Introduction
[1]
The applicant, SVA Security
(Pty) Ltd, approached this Court on an urgent basis to seek a
declaratory order that it be determined
that the termination of the
Guarding Agreement between it and the first respondent (Makro (Pty)
Ltd) (Makro) and the awarding of
the contract to the second
respondent (Fidelity Security Services (Pty) Ltd) (Fidelity),
constitutes a transfer of an undertaking
as a going concern as
contemplated in the provisions of section 197 of the Labour
Relations Act (LRA).
[1]
[2] The
applicant further seeks that the employment contracts of the third to
further respondents be transferred automatically from
it to Fidelity
on the date of the transfer being 1 April 2017. Only Fidelity opposed
the application.
Background
[3] The
applicant is a privately owned entity, which provides security and
related services, including but not limited to site guarding,
offsite
monitoring and other related security services to public and private
entities. The applicant has a workforce of about 1347
employees
within the Republic. The third to further respondents are its
employees.
[4]
Fidelity is also a privately owned security company, which provides
inter alia
cash solutions, guarding services, electronic
solutions, parking management and specialised services.
[5]
Makro, a division of Massmart Group is a privately owned enterprise
and it trades as a retailer throughout the Republic. For
the purposes
of these proceedings, Makro was the principal provider of a security
contract to the applicant since 2008 until 1
April 2017. The
applicant provided security services to various retail locations of
Makro and had provided a total of 330 security
personnel in that
regard.
[6]
During December 2016, Makro invited existing security contractors
including SVA to bid or re-tender for the guarding contracts
at a
national level. During January 2017, the applicant was notified
by Makro that the contract it currently held and had
tendered for had
been awarded to Fidelity. The effect thereof was that with effect
from 1 April 2017, Fidelity would assume all
security obligations
throughout all the Makro retail premises nationally.
[7]
During 23 January 2017, Fidelity despatched written confirmation to
the applicant regarding the awarding of the contract. In
the latter
titled “
ROLL OUT / TAKEOVER IN TERMS OF THE AWARD REGARDING
PHYSICAL SECURITY SERVICES”
the following was recorded:
“
.
. .
Please
be advised that we were advised by MAKRO that we were appointed by
them to take over all current physical security services
on their
sites nationally.
In
this regard, we have been made aware that you are currently providing
this service to MAKRO and thus you and your staff would
be affected
by this appointment. We therefore would like to invite all your
current staff who are providing security services on
this Contract
and who may be affected by the appointment of ourselves, to apply for
positions with our Company.
In
this regard, all applicants would be considered for employment should
they meet the necessary requirements of ourselves.
We
have ensured that the process which we would embark on herein would
be in compliance with the Labour Relations Act, Basic Conditions
of
Employment Act and the Sectoral Determination 6, and any other
relevant legislation that may be applicable.
.
. .”
[8] The
clear intention of this confirmation was to invite employees of the
applicant, who were stationed at various Makro retail
premises and
who may have been affected by the termination of contract to apply
for employment with Fidelity. The applicant however
held the view
that new contract between Makro and Fidelity constituted a transfer
as contemplated in the provisions of section 197
of the LRA. It
was contended that this view was fortified by its letter dated
25 January 2017 addressed to Fidelity,
in which
inter
alia
it was recorded that:
“…
…
the
termination of our contract for the provision of security services to
Makro and the award of the contract to yourselves triggers
the force,
effect and application of
section 197
of the
Labour Relations Act,
No. 66 of 1995
, as amended (the “LRA”). For your ease of
reference, we attach hereto a copy of
section 1
97 of the LRA.
It
is trite law that in the aforesaid circumstances
section 197
wholly
applies, and the application thereof impacts Makro, SVA and
yourselves.
Accordingly,
the contents of paragraph 3 of your aforementioned letter in that our
staff members are to apply for positions within
Makro violate, and
are not in compliance with the provisions of
section 197.
In brief,
the ‘new employer’ in terms of
section 197
is Fidelity
Security, who is obliged to accept the transfer of employment of all
of our staff members as specifically provided
for in the said
section
197.
This is most certainly our wish and intent as discussed with
your Mr Denis Dreyer at a meeting held at Makro distribution Centre
on Friday, 20 January 2017.
…”
[9] In a
letter dated 27 January 2017, Fidelity held the view that the
provisions of
section 197
did not find application in the current
process and therefore the applicant’s employees stationed at
Makro ought to make
themselves available for recruitment and
selection. In a further letter dated 6 February 2017, from Fidelity
addressed to the applicant,
it outlined the selection and recruitment
exercise to be undertaken and the minimum requirements that a
candidate for employment
ought to possess in order to be considered
for employment. More importantly, Fidelity emphasised its view that
the provision of
section 197
did not find application.
[10] Upon
seeking legal advice, the applicant through its legal representatives
sent a letter to Fidelity on 24 March 2017, again
reiterating its
position that a transfer as contemplated in terms of
section 197
of
the LRA had taken place, and implored Fidelity to reconsider its
position. A draft
section 197
agreement was also attached to
this correspondence. In a written response on 27 March 2017,
Fidelity’s attorneys
of record again disputed that the
termination of the agreement amounted to a transfer as contemplated
in
section 197
, and accordingly rejected any consideration of
the draft
section 197
agreement.
[11] It
was common cause that as at the date of the hearing of this
application, a total of 240 of the third to further respondents
were
employed by Fidelity following Makro’s intervention and the
recruitment process. In essence therefore, only 89 of the
applicant’s
former employees remain affected by this dispute.
[12] The
applicant nevertheless contends that its business at the sites
operated by Makro will be transferred to Fidelity as a going
concern
and that should it capitulate, the third to further respondents would
have to be retrenched as each of its operation operates
as a unique
entity on the premises of a client. It was submitted that it was the
third to further respondent that stood to be prejudiced
should they
be not transferred on the principles set out in
section 197.
[13]
Fidelity in its answering affidavit denied that the cancellation of
the guarding agreement between the applicant and Makro,
and the
conclusion of a similar written agreement with it constituted a
transfer of a business as a going concern from the applicant
to it.
It was conceded that Fidelity would be rendering essentially the same
security service as previously rendered by the applicant
to Makro,
but that it would be using its own equipment to do so. It was
contended that that there would be no transfer of any security
equipment or any other movable assets from the applicant to Fidelity.
[14]
Fidelity further conceded that some 240 of the individual respondents
have been employed by it at the request of Makro, and
that the
remaining employees have either not applied for positions or are
disqualified from doing so. Accordingly, it was submitted
that the
applicant with this application merely sought to foist its statutory
and contractual obligations to pay severance packages
to the
individual respondents on Fidelity.
Evaluation
(i)
Urgency
[15]
Fidelity disputes that the matter is urgent. In the event that the
Court accords the matter urgency, it was further disputed
that there
was a
section 197
transfer. The principles applicable in urgent
applications are trite.
Rule 8
of the Rules for the Conduct of
proceedings in the Labour Court provide that:
“
(1)
A party that applies for urgent relief must file an application that
complies with the requirements
of
rules 7(1)
,
7
(2),
7
(3) and, if
applicable, 7(7).
(2)
The affidavit in support of the application must also contain—
(a)
the reasons for urgency and why urgent relief is necessary;
(b)
the reasons why the requirements of the rules were not complied with,
if that is the
case; and
(c)
if a party brings an application in a shorter period than that
provided for in terms
of
section 68(2)
of the Act, the party must
provide reasons why a shorter period of notice should be permitted.”
[16] It
was common cause that the invitation to tender for the business was
made in December 2016. On 23 January 2017, Makro
awarded the
tender to Fidelity. The applicant approached the Court with this
application on 5 April 2017, and set the matter down
for a hearing on
11 April 2017. This was now some 52 court days since the applicant
was advised that it had lost the contract.
[17] The
applicant’s contention was that the urgency arose on the basis
that Fidelity refused to take over the employees’
as a going
concern on or before 1 April 2017. Unfortunately, however,
the proverbial horse had already bolted at the
time that this matter
came before the Court, as the contract between Makro and Fidelity
came into effect on 1 April 2017. It was
only on 28 March 2017
that the applicant threatened to approach the Court with this
application, and even then, it had
been confirmed through various
forms of correspondence that Fidelity did not consider the taking
over of the contract as a transfer.
[18] It
is accepted that parties need not needlessly approach the Court on an
urgent basis if a dispute can be amicably resolved.
However, in this
case, any averments in regard to when attempts were made to amicably
resolve the matter are vague. As correctly
pointed out on behalf of
Fidelity, a contention by the applicant that it had “
attempted
to resolve the matter without further litigation”
is
equally vague. As at the time that the contract was awarded to
Fidelity, and upon the latter’s response as early as 27
January
2017, it was apparent what its stance was on any allegations of a
transfer. Thus any further engagements between the parties
thereafter
was futile.
[19]
There is further no merit in the contention that the mere fact that
the remaining employees would lose their jobs, or the fact
that
Fidelity had cherry-picked employees from the applicant on its own
created urgency. The applicant knew of the consequences
of the loss
of the contract as early as 23 January 2017. As at that
date, the applicant was equally made aware that Fidelity
sought to
invite the applicant’s employees for positions. As shall
further be illustrated below, the loss of employment as
a result of
the termination of the guarding contract, or the fact that Fidelity
employed some of the applicant’s employees
does not imply that
other employees not appointed remain remediless.
[20]
In the light of the above, I am
satisfied that the urgency claimed in this case is clearly
self-created. It is trite that the longer
it takes from the date of
the event-giving rise to the proceedings, the more urgency is
diminished.
[2]
Furthermore, the Court cannot accord a matter urgency in
circumstances where the urgency claimed is self-created.
[21]
Flowing from the above conclusions on urgency, the matter ought to be
struck off the roll. It is however my view that since
the applicant
seeks a final order, no purpose would be served in placing the matter
back on the roll. To that end, I intend to
deal with the question
whether there was a transfer as contemplated within the meaning of
section 197.
(ii)
Was there a
section 197
transfer?
[22]
Section 197(1)
of the LRA provides that:
“
(1)
In this section and in
section 197A
—
(a)
‘business’ includes the whole or part of any business,
trade, undertaking
or service; and
(b)
‘transfer’ means the transfer of a business by one
employer (“the
old employer”) to another employer (“the
new employer”) as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in
terms of sub-section
(6)—
(a)
the new employer is automatically substituted in the place of the old
employer in
respect of all contracts of employment in existence
immediately before the date of transfer;
(b)
all the rights and obligations between the old employer and an
employee at the time
of transfer continue in force as if there had
been rights and obligations between the new employer and the
employee;
(c)
anything done before the transfer by or in relation to the old
employer, including
the dismissal of an employee or the commission of
an unfair labour practice or act of unfair discrimination, is
considered to have
been done by or in relation the new employer; and
(d)
the transfer does not interrupt and employee’s continuity of
employment, and
an employee’s contract of employment continues
with the new employer as if with the old employer.”
[23]
Emanating
from the above provisions, it is trite that for these provisions to
find application, the three prerequisites, viz, (i)
a
transfer; (ii)
of
a business (the transfer must be of the whole or part of a business);
(iii) as a going concern must be met simultaneously.
[3]
[24]
Whether
a
business, including the whole or part of any business, trade
undertaking or service, has been transferred ‘by one employer
to another employer as a going concern’ was answered by t
he
Constitutional Court in
N
EHAWU
v University of Cape Town
[4]
in the
following terms:
“
The
phrase “going concern” is not defined in the LRA. It must
therefore be given its ordinary meaning unless the context
indicates
otherwise. What is transferred must be a business in operation “so
that the business remains the same but in different
hands”.
Whether that has occurred is a matter of fact which must be
determined objectively in the light of the circumstances
of each
transaction. In deciding whether the business has been transferred as
a going concern, regard must be had to the substance
and not the form
of the transaction. A number of factors will be relevant to the
question whether a transfer of a business as a
going concern has
occurred, such as the transfer or otherwise of assets both tangible
and intangible, whether or not workers are
taken over by the new
employer, whether customers are transferred and whether or not the
same business is being carried on by the
new employer. What must be
stressed is that this list of factors is not exhaustive and that none
of them is decisive individually.
They must all be considered in the
assessment and therefore should not be considered in isolation.”
(Footnotes omitted.)
[25]
The
applicant’s basis for alleging that a transfer took place was
that Fidelity would be providing an identical service in
favour of
Makro in accordance with the same services that it previously
provided at the same premises, such as the operation of
running the
staff and providing the required security. It was contended that the
order sought is materially in the same terms as
granted in
Unitrans
Supply Chain Solutions (Pty) Ltd & Another v Nampak Glass (Pty)
Ltd & Others
,
[5]
where
the termination of
the warehousing agreement in that case between the first applicant
and second respondent and the conclusion of
an agreement for the
provision of similar services by the second respondent was found to
have constituted a transfer in terms of
section 197
of the LRA. The
Court in that case further found that t
he
contracts of the third to further respondents had transferred
automatically from the second applicant to the second respondent
on
the date of the transfer.
[26]
The objective facts of this case are in my
view distinguishable in that the applicant lost its contract of
service to Fidelity.
From a further examination of the substance of
the transaction between Makro and Fidelity, I did not understand the
applicant’s
case to be that there was a transfer of any
equipment, intellectual property or any tangible/intangible assets
from it to Fidelity
to enable the latter to service the contract.
There was therefore a mere cancellation of the contract of service
with Makro, and
what was taken over by Fidelity was the service, and
not a ‘business’. This was so in that upon taking over
the contract,
Fidelity would utilise its own equipment, assets and
resources to service that contract. Thus, Fidelity would continue to
seamlessly
service the contract with Makro without any assets or
equipment being taken over from the applicant.
[27]
As it
was correctly pointed by Counsel for Fidelity, it is trite that the
termination of a service contract and the subsequent appointment
of a
new service provider does not
per
se
constitute a
section 197
transfer. This principle was confirmed by
Jafta J in
Aviation
Union
[6]
in the following terms:
“
Transfer
For
the section to apply the business must have changed hands, whether
through a sale or other transaction that places the business
in
question in different hands. Thus the business must have moved from
one person to the other. The breadth of the transfer contemplated
in
the section is consistent with the wide scope it is intended to
cover. Therefore, confining transfers to those effected
by the
old employer is at odds with the clear scheme of the section.
But
whether a transfer as contemplated in
section 197
has occurred or
will occur is a factual question. It must be determined with
reference to the objective facts of each case. Speaking
generally, a
termination of a service contract and a subsequent award of it to a
third party does not, in itself, constitute a
transfer as envisaged
in the section. In those circumstances, the service provider whose
contract has been terminated loses the
contract but retains its
business. The service provider would be free to offer the same
service to other clients with its workforce
still intact.
For
a transfer to be established there must be components of the original
business which are passed on to the third party. These
may be in the
form of assets or the taking over of workers who were assigned to
provide the service. The taking over of workers
may be occasioned by
the fact that the transferred workers possess particular skills and
expertise necessary for providing the
service or the new owner may
require the workers simply because it did not have the workforce to
do the work. Without the protection
afforded by
section 197
, the
new owner with no workers may be exposed to catastrophic
consequences, in the event of the workers declining its offer of
employment.”
[28]
In
this case, and as already indicated, no components of the applicant’s
business with Makro were passed on to Fidelity. Jafta
J in a minority
judgment in
Aviation
Union
emphasised that although the definition of business in
section 197(1)
includes a service, “
it
must be emphasised that what is capable of being transferred is the
business that supplies the service and not the service itself
”.
[7]
[29]
To reiterate, only the service of a
contract was taken over in this case, and not the applicant’s
business. The applicant
is at liberty to continue with its business
by providing similar services to other potential clients. The fact
that some of the
applicant’s employees were taken over as a
consequence of the intervention of Makro in this case cannot be
indicative of
a transfer. To hold otherwise would lead to untenable
results in that if every time a mere contract of service is taken
over by
a new service provider, and the latter would be required to
take over all the employees from the old service provider on the
basis
that a section
197
transfer has
taken place, this would then imply that the old service provider can
simply wash its hands off its employees after
losing a contract.
Clearly this scenario could not have been anticipated by the drafters
of
section 197
of the LRA, in view of its purpose, which is to
safeguard security of employment.
[30]
It is
accepted that the provisions of
section 197
are meant to protect the
interests of employees where there is a genuine transfer. However,
where there is no transfer within the
meaning of
section 197
as in
this case, the affected employees, to the extent that the previous
contract holder cannot find alternative positions for
them as a
result of the termination of the contract of service, are not in any
event remediless. The provisions of
section 189
of the LRA are
available to them, and to the extent that the new service provider
had cherry-picked amongst the old service provider’s
employees,
those not appointed have remedies in terms of the provisions of
Chapter II of the Employment Equity Act.
[8]
[31]
In conclusion, having had regard to the
circumstances of this case, the nature of the contract that was
terminated between the applicant
and Makro, and the new contract as
entered into between Makro and Fidelity, I am not persuaded that the
facts of that particular
transaction constituted a transfer within
the ambit of section 197 of the LRA.
[32]
Fidelity sought a cost order in the event that it was
successful. Having had regard to the requirements of law and
fairness, I do
not see any reason why the applicant should not be
burdened with the costs of this application.
Order
[33]
In the premises, the following order is made:
1.
The applicant’s application is
dismissed with costs.
––––––––––––––––––––
E
Tlhotlhalemaje
Judge
of the Labour Court of South Africa
Appearances
For the
Applicant:
Adv. AJ Nel
Instructed
by:
Lee and McAdam Attorneys
For the
Second Respondent:
Adv. MJ. Van As
Instructed
by:
Blake Bester De Wet & Jordaan Attorneys
[1]
Act 66 of 1995, as amended.
[2]
AMCU and Others v Northam
Platinum Ltd and Another
(2016) 37 ILJ 2840 (LC) at para 26.
[3]
Aviation
Union of South Africa & Another v South African Airways (Pty)
Ltd and Others
2012
(2) BCLR 117
(CC);
[2012] 3 BLLR 211
(CC); (2011) 32 ILJ 2861 (CC);
2012 (1) SA 321
(CC) at para 44. (
Aviation
Union)
[4]
2003 (2) BCLR 154
;
2003 (3) SA 1
(CC); (
2003)
24 ILJ 95 at para 56.
[5]
(2014) 35
ILJ 2888 (LC) at para 33, as confirmed by the Labour Appeal Court in
TMS
Group Industrial Services (Pty) Ltd t/a Vericon v Unitrans Supply
Chain Solutions (Pty) Ltd & Others
(2015) 36 ILJ 197 (LAC).
[6]
Aviation
Union
above
n 3 at paras 46 – 8.
[7]
Id a
t para
52.
[8]
Act 55 of
1998.